Rising concerns over U.S. debt levels are weighing heavily on the U.S. dollar, driving major currencies like GBP/USD toward 2025 highs while pushing the Dow to a critical support zone, according to market analyst Razan Hilal, CMT.
The U.S. dollar index (DXY) weakened to 101.45, nearing key support levels, as U.S. bond yields surged amid President Trump’s proposed tax cuts, which the Tax Foundation estimates could slash federal revenue by $4.5 trillion from 2025 to 2034.
As markets await clarity on economic fundamentals, safe-haven assets are regaining bullish momentum and indices are battling between bearish pressures and potential bullish breakouts.
GBP/USD Tests 2024 Highs
Supported by stronger-than-expected UK economic data, including inflation nearing a one-year peak at 3.1% in April 2025, according to recent reports, GBP/USD is challenging its 2024 high of 1.3450.
The pair briefly surpassed this resistance on a 3-day log scale chart but needs a sustained close above to confirm a bullish continuation toward 2021 highs at 1.3750 and 1.4230.
Mixed UK Flash PMI data released today showed services improving to 50.3, signaling expansion, while manufacturing slumped to 45.1, indicating contraction.
If resistance holds amid overbought conditions mirroring levels seen in 2021, 2023, and 2024, a pullback to 1.3230, 1.3150, or 1.3090 is possible, with a deeper retreat to 1.2930 if bearish momentum intensifies.
Dow at Critical Support Zone
The Dow is holding at a pivotal neckline of a double-top pattern formed between December 2024 and February 2025, as observed on a weekly log scale chart. Currently trading at 42,150, the index aligns with the RSI retracing to the upper edge of the 50-neutral zone, setting the stage for a potential breakout.
A move above 43,000 could propel the Dow toward 44,000 and 44,800, aligning with a broader bull rally to new record highs. However, a break below 41,800 would shift focus to support levels at 41,500 and 40,900. Real-time market sentiment on X reflects cautious optimism, with some traders anticipating a rebound if positive economic data emerges.
Did You Know?
The U.S. dollar index (DXY), which measures the dollar’s value against a basket of six major currencies, was first introduced in 1973 with a base value of 100, following the collapse of the Bretton Woods system.
U.S. Debt and Global Yields Add Pressure
Mounting U.S. debt concerns, exacerbated by Trump’s tax cut proposals, are fueling market unease. The proposed cuts, alongside spending reductions in Medicaid, green energy, and higher education, have raised fears of fiscal strain. Simultaneously, 30- and 40-year Japanese government bond yields hit record highs of 2.15% and 2.45%, respectively, reflecting global yield pressures.
Despite the Trump administration’s efforts to project long-term growth, the DXY’s decline signals persistent dollar weakness. Analysts suggest that a return of optimism could see the DXY rebound above 100 and 102, potentially altering the narrative of currency highs in the latter half of 2025.
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Market Outlook and Key Drivers
The interplay between U.S. debt dynamics and global economic indicators remains a critical driver for markets. If fundamental data supports an optimistic outlook, indices like the Dow could resume their upward trajectory, while GBP/USD may sustain its bullish momentum.
However, ongoing global uncertainties, including trade tensions and inflationary pressures, continue to challenge investor confidence. Markets are closely monitoring upcoming U.S. economic releases, such as the next non-farm payrolls report, for clues on the Federal Reserve’s rate path, which could further influence the dollar’s trajectory.
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